SEC charges two with fraud Scam artists touted get-rich-quick investment scheme
Reading warnings about the tactics scam artists use to perpetrate investment fraud is one thing; seeing those alleged tactics in action can be real eye-opener.
In connection with civil fraud charges it filed recently against two Utah residents, the U.S. Securities and Exchange Commission has posted portions of TV infomercials it said the two used to dupe the elderly and others into believing they could “make extraordinary stock market profits" by buying an expensive securities trading system.
The SEC filed a complaint against Linda Woolf and David Gengler in U.S. District Court in Virginia, alleging that they falsely claimed that they became successful investors using the "Teach Me To Trade" classes, mentoring, and computer software. The two promoted the system through infomercials, print ads, direct mail, and free “investor’s workshops” typically held in hotels, the complaint says.
Separately, the two were indicted March 6 by a federal grand jury on charges of wire fraud and conspiring to commit wire and mail fraud in connection with their marketing practices.
In one of the infomercials on the SEC Web site, Woolf says she was a former teacher who was able to replace her entire income in less than nine weeks using the Teach Me To Trade system. In another infomercial, Gengler talks about how he turned $10,000 into $20,000 in one week. The SEC complaint says that Gengler claimed that he was able to pay back the $50,000 he spent on his "education" just three months after he began trading. It said he also claimed that he made $100,000 trading securities during the following year and nearly $800,000 about four years later.
Yet, according to the complaint, “during the period Gengler claims to have been a successful professional trader using the option and short-term trading strategies,” his tax returns “typically reflected no short-term capital gains.” It says that Woolf never declared a securities trading profit on her federal income tax returns.
Instead, the complaint alleges that together the two made more than $6 million in commissions selling the investment system, charging customers as much as $40,000. It says the two encouraged prospective customers to pay for the system by borrowing on their credit cards, providing a script for them to use when requesting a credit line increase.
"The allegations depict a cold-hearted scheme that preyed on the elderly, the desperate, and even the unemployed by promising financial security while instead robbing victims blind," SEC Chairman Christopher Cox said in a prepared statement. "The commission's charges should send a warning to all those who would masquerade as successful traders on TV while prowling the country for victims."
FINRA, the largest private regulator of the securities industry, has been warning investors about investment scams aimed at elderly people, and has urged the public to be especially cautious about attending free investment seminars.
The SEC is asking the court to order Woolf and Gengler to return all “ill-gotten gains” and to pay civil penalties. If found guilty in the federal indictment, the two could face 30 years in prison, a $250,000 fine, and five years of supervised release.
The complaint describes both as independent contractors for entities affiliated with Teach Me To Trade, which is owned by EduTrades, a subsidiary of Cape Coral, Fla.-based Whitney Information Network. In January, Whitney reached a settlement with the Florida attorney general, which investigated several of its stock market and real estate investment programs, including Teach Me To Trade. Although it did not admit wrongdoing, the company agreed to provide $450,000 in consumer restitution in addition to some $580,000 it had already refunded to consumers, set aside $150,000 to cover any additional claims, contribute $150,000 to the attorney general's "Seniors vs. Crime" program, and pay $150,000 to cover the cost of the agency’s investigation. It also agreed to change some practices and to make certain disclosures and disclaimers to consumers regarding its seminars and training courses.
For the 12 months ending Dec. 31, 2006, the complaint says, the company received $112.6 million in cash from sales of its securities workshops. —Anthony Giorgianni
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